SEC Comment Letter for TOP SHIPS INC. (TOPS) (CIK 0001296484) (TOPS) — Sep 7, 2007
TOP SHIPS INC. (TOPS) (CIK 0001296484)
Date: Sept. 7, 2007 · CIK: 0001296484 · Accession: 0000000000-07-043573
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 000-50859
Letter
UNITED STATES SECURITIES AND EXCHANGE COMMISSION CF/AD5 100 F STREET, NE WASHINGTON, D.C. 20549-3561 DIVISION OF CORPORATION FINANCE September 5, 2007 Via Mail and Fax Evangelos J. Pistiolis Chief Executive Officer, President Top Tankers Inc. 1 Vassilissis Sofias and Meg. Alexandrou Street, 15124 Maroussi, Greece
RE: Top Tankers Inc. Form 20-F: For the Year Ended December 31, 2006 File Number: 000-50859
Dear Mr. Pistiolis:
We have reviewed your corresponden ce dated August 24, 2007, and have the following comments. We believe you should amend you filings as indicated in comment numbers 3 and 4, and you should revise future filings in response to the other comments where a revision is indicated. If you disagree, we will cons ider your explanation as to why a revision or amendment is unnecessary. Pl ease be as detailed as necessary in your explanation. We also ask you to provid e us with information so we may better understand your disclosure. After reviewing th is information, we may raise additional comments. Please file your response to our comment via EDGAR, under the label “corresp,” within 10 business days from the date of this letter.
Form 20-F For the Year Ended December 31, 2006
Item 3. Key Information Selected Financial Information
1. Refer to your response to our prior comment 1. You state EBITDA is useful because it is used by financial analysts and b ecause it facilitates operating performance comparisons from period to period and from company to company by backing out differences caused by variations in capital structure, tax positions, and facilities and equipment. With regard to its use by fina ncial analysts, this is not a substantive reason specific to you that justifies usefulne ss. Refer to footnote 44 of FR-65. With regard to facilitating opera ting performance comparisons from period to period, it does not appear that you have explained how this measure is useful. If your
Top Tankers Inc. September 5, 2007 Page 2 implication is that EBITDA facilitates pe riod to period comparisons by eliminating certain variances in items eliminated, we caution you that a non-GAAP measure should never be used in an attempt to sm ooth earnings. With regard to facilitating operating performance comparisons from co mpany to company, it is not clear why you believe it is useful for i nvestors to ignore factors such as capital structure, tax positions, and facilities and equipment when making such comparisons. Additionally, interest and ta x expenses are already excl uded from operating income, a GAAP measure, so it is not clear why an al ternative measure is necessary to exclude such amounts. Based on your response , you have not provided substantive justification as to the useful ness of EBITDA to investors. Therefore, please revise your filings to eliminate presenta tion of this non-GAAP measure.
Consolidated Statements of Cash Flows
2. Refer to your response to our prior comme nt number 3. Please consider adding disclosure consistent with your response that explains why restricted cash is presented as both an investing and fi nancing activity in the stat ements of cash flows as applicable.
Notes to Consolidated Financial Statements Note 2. Significant Accounting Policies (m) Accounting for Dry-Docking Costs
3. We note your responses to our prior co mment numbers 4, 5, and 6 and appreciate your detailed responses. You state that upon survey or inspection of your vessels, you incur costs for tasks necessary to satisfy requirements of the vessel’s classification society and that you capitalize such costs. Th e fact that certain repair and maintenance activities are determined to be necessary as a result of regulatory inspections should not affect how you account for the associated costs. While you deem these costs to be “non-routine” and integral to satisfying inspection requirements, in large part they appear to be incurred for repairs and maintenance that do not appreciably extend the useful life, increase the earning capacity, or improve the efficiency of the vessels, but rather allo w the vessels to conti nue to be operated in their current capacity. In this regard, it appears these costs do not qualify for capitalization but rath er should be expensed as in curred in accordance with your accounting policy for repairs and maintenance co sts, which states that all repairs and maintenance costs are expensed as incurred. Based on the cost categories outlined in your response to our prior comment 6, steelworks, coating of tanks and other components, piping and valves, and machin ery and electrical works costs do not generally appear eligible for capitalization. With re gard to the “other expenses” category, “oil sludge,” “sewage and garb age removal,” “temporary lighting,” “telephone and ventilation se rvices,” and “cleaning of debris” also do not appear eligible for capitalization. We believe you should amend your Form 20-F for the year ended December 31, 2006 and subsequent fili ngs, as appropriate, to restate your
Top Tankers Inc. September 5, 2007 Page 3 financial statements to expense when incu rred the costs indicated in this comment that had been previously capitalized.
4. Additionally, in reference to your response to our prior comment number 5, “costs to be expensed when incurred” should be identified and recorded in the period in which incurred rather than at the conclusion of the dry docking, particularly when a vessel is dry docked for more than one reporting peri od. Please reflect this treatment in the amendments referred to in the preceding co mment. If you believ e such identification and accounting is not practicable, please disc lose this and the reason for your belief.
5. Further, please revise your disclosure cons istent with the treatm ents specified in the two preceding comments, and consistent with your responses to our prior comment numbers 4, 5 and 6 to describe in more deta il the types of costs c onsidered to be dry docking costs that are deferred and amorti zed and those that are expensed when incurred as repair and maintenance or othe r expenses. Also, include a description of how such costs are identified by you.
Note 11. Sale and Leaseback of Vessels
6. Refer to your response to our prior comment number 7 in regard to your analysis of criterion number 4. It is not clear why your incremental borrowing rate for 2006 assumed in your analysis would be signi ficantly greater than the borrowing rates associated with the financing of vessel s acquired in 2005. Plea se advise. Also, provide us with details of how you determined the 12% rate used in your analysis and why this is representative of your increm ental borrowing rate, and provide us with copies of independent documentation in support of any portion of your computation of this rate (e.g., rates available from traditional bank financing and mezzanine financing reflected in the analysis). Furt her, explain to us in greater detail how traditional bank financing assumed in your 2006 incremental borrowing rate analysis differs from financing you obtained in prior acquisitions of vessels.
7. Refer to your response to our prior comment number 8. Please explain to us in sufficient detail the operating expenses asso ciated with the repurchased vessels that exceeded your expectations and the factors th at contributed to the difference in actual results compared to expectations and why su ch difference was not determinable at the time of the sale/leaseback transaction.
8. Also, tell us whether your e xpectations for the repurchased vessels were significantly different from those associated with the other vessels subject to the 2006 sales/leaseback transactions, and if so, why. Tell us whether or not there was a similar difference between actual results and expectations for these other vessels as there was for the repurchased vessels. If a similar variance existed for these other vessels, tell us and disclose why you did not repurchase these vessels as well and the actions you are taking or expect to take to rectify any negative cash flow associated with them or, if true, why you are not taking any action to rectify th is situation. If a
Top Tankers Inc. September 5, 2007 Page 4 similar variance was not experienced, explain to us the fact ors that contributed to the differences in your experience between the repur chased vessels and the other vessels.
You may contact Doug Jones at 202-551-3309 or Lyn Shenk at 202-551-3816 with any questions. You may also contact me at 202-551-3812.
Sincerely,
Michael Fay
Accounting Branch Chief
Show Raw Text
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
CF/AD5
100 F STREET, NE
WASHINGTON, D.C. 20549-3561
DIVISION OF
CORPORATION FINANCE
September 5, 2007
Via Mail and Fax
Evangelos J. Pistiolis
Chief Executive Officer, President
Top Tankers Inc.
1 Vassilissis Sofias and Meg.
Alexandrou Street, 15124
Maroussi, Greece
RE: Top Tankers Inc.
Form 20-F: For the Year Ended December 31, 2006
File Number: 000-50859
Dear Mr. Pistiolis:
We have reviewed your corresponden ce dated August 24, 2007, and have the
following comments. We believe you should amend you filings as indicated in comment
numbers 3 and 4, and you should revise future filings in response to the other comments
where a revision is indicated. If you disagree, we will cons ider your explanation as to
why a revision or amendment is unnecessary. Pl ease be as detailed as necessary in your
explanation. We also ask you to provid e us with information so we may better
understand your disclosure. After reviewing th is information, we may raise additional
comments. Please file your response to our comment via EDGAR, under the label
“corresp,” within 10 business days from the date of this letter.
Form 20-F For the Year Ended December 31, 2006
Item 3. Key Information
Selected Financial Information
1. Refer to your response to our prior comment 1. You state EBITDA is useful because it is used by financial analysts and b ecause it facilitates operating performance
comparisons from period to period and from company to company by backing out differences caused by variations in capital structure, tax positions, and facilities and
equipment. With regard to its use by fina ncial analysts, this is not a substantive
reason specific to you that justifies usefulne ss. Refer to footnote 44 of FR-65. With
regard to facilitating opera ting performance comparisons from period to period, it
does not appear that you have explained how this measure is useful. If your
Top Tankers Inc.
September 5, 2007
Page 2
implication is that EBITDA facilitates pe riod to period comparisons by eliminating
certain variances in items eliminated, we caution you that a non-GAAP measure should never be used in an attempt to sm ooth earnings. With regard to facilitating
operating performance comparisons from co mpany to company, it is not clear why
you believe it is useful for i nvestors to ignore factors such as capital structure, tax
positions, and facilities and equipment when making such comparisons. Additionally, interest and ta x expenses are already excl uded from operating income, a
GAAP measure, so it is not clear why an al ternative measure is necessary to exclude
such amounts. Based on your response , you have not provided substantive
justification as to the useful ness of EBITDA to investors. Therefore, please revise
your filings to eliminate presenta tion of this non-GAAP measure.
Consolidated Statements of Cash Flows
2. Refer to your response to our prior comme nt number 3. Please consider adding
disclosure consistent with your response that explains why restricted cash is presented
as both an investing and fi nancing activity in the stat ements of cash flows as
applicable.
Notes to Consolidated Financial Statements
Note 2. Significant Accounting Policies
(m) Accounting for Dry-Docking Costs
3. We note your responses to our prior co mment numbers 4, 5, and 6 and appreciate
your detailed responses. You state that upon survey or inspection of your vessels,
you incur costs for tasks necessary to satisfy requirements of the vessel’s classification society and that you capitalize such costs. Th e fact that certain repair
and maintenance activities are determined to be necessary as a result of regulatory
inspections should not affect how you account for the associated costs. While you deem these costs to be “non-routine” and integral to satisfying inspection
requirements, in large part they appear to be incurred for repairs and maintenance that
do not appreciably extend the useful life, increase the earning capacity, or improve the efficiency of the vessels, but rather allo w the vessels to conti nue to be operated in
their current capacity. In this regard, it appears these costs do not qualify for
capitalization but rath er should be expensed as in curred in accordance with your
accounting policy for repairs and maintenance co sts, which states that all repairs and
maintenance costs are expensed as incurred. Based on the cost categories outlined in your response to our prior comment 6, steelworks, coating of tanks and other components, piping and valves, and machin ery and electrical works costs do not
generally appear eligible for capitalization. With re gard to the “other expenses”
category, “oil sludge,” “sewage and garb age removal,” “temporary lighting,”
“telephone and ventilation se rvices,” and “cleaning of debris” also do not appear
eligible for capitalization. We believe you should amend your Form 20-F for the year
ended December 31, 2006 and subsequent fili ngs, as appropriate, to restate your
Top Tankers Inc.
September 5, 2007
Page 3
financial statements to expense when incu rred the costs indicated in this comment
that had been previously capitalized.
4. Additionally, in reference to your response to our prior comment number 5, “costs to
be expensed when incurred” should be identified and recorded in the period in which incurred rather than at the conclusion of the dry docking, particularly when a vessel is
dry docked for more than one reporting peri od. Please reflect this treatment in the
amendments referred to in the preceding co mment. If you believ e such identification
and accounting is not practicable, please disc lose this and the reason for your belief.
5. Further, please revise your disclosure cons istent with the treatm ents specified in the
two preceding comments, and consistent with your responses to our prior comment
numbers 4, 5 and 6 to describe in more deta il the types of costs c onsidered to be dry
docking costs that are deferred and amorti zed and those that are expensed when
incurred as repair and maintenance or othe r expenses. Also, include a description of
how such costs are identified by you.
Note 11. Sale and Leaseback of Vessels
6. Refer to your response to our prior comment number 7 in regard to your analysis of
criterion number 4. It is not clear why your incremental borrowing rate for 2006
assumed in your analysis would be signi ficantly greater than the borrowing rates
associated with the financing of vessel s acquired in 2005. Plea se advise. Also,
provide us with details of how you determined the 12% rate used in your analysis and
why this is representative of your increm ental borrowing rate, and provide us with
copies of independent documentation in support of any portion of your computation
of this rate (e.g., rates available from traditional bank financing and mezzanine financing reflected in the analysis). Furt her, explain to us in greater detail how
traditional bank financing assumed in your 2006 incremental borrowing rate analysis differs from financing you obtained in prior acquisitions of vessels.
7. Refer to your response to our prior comment number 8. Please explain to us in
sufficient detail the operating expenses asso ciated with the repurchased vessels that
exceeded your expectations and the factors th at contributed to the difference in actual
results compared to expectations and why su ch difference was not determinable at the
time of the sale/leaseback transaction.
8. Also, tell us whether your e xpectations for the repurchased vessels were significantly
different from those associated with the other vessels subject to the 2006
sales/leaseback transactions, and if so, why. Tell us whether or not there was a
similar difference between actual results and expectations for these other vessels as
there was for the repurchased vessels. If a similar variance existed for these other vessels, tell us and disclose why you did not repurchase these vessels as well and the actions you are taking or expect to take to rectify any negative cash flow associated
with them or, if true, why you are not taking any action to rectify th is situation. If a
Top Tankers Inc.
September 5, 2007
Page 4
similar variance was not experienced, explain to us the fact ors that contributed to the
differences in your experience between the repur chased vessels and the other vessels.
You may contact Doug Jones at 202-551-3309 or Lyn Shenk at 202-551-3816
with any questions. You may also contact me at 202-551-3812.
Sincerely,
Michael Fay
Accounting Branch Chief
cc: Stamatios N. Tsantanis, Chief Financial Officer